It's no secret that all insurers try to sell insurance policies with more ammunition in their arsenal than lowest price. Differentiation is one of the most valuable ways all brands - not just insurance companies - can make themselves more attractive to customers. In 2016, one leading property insurer added several enhancements to their all-risk policy form to establish additional differentials to the market in addition to bringing risk mitigation for their clients. One of those enhancements was the inclusion of coverage for Communicable Disease. While several markets might include this via endorsement with a very small sublimit (say $100,000), this insurer's coverage is the first broad-brush enhancement policy-wide. This begs two very important questions: is significant Communicable Disease coverage as part of a property policy here to stay, or is it just a trend? Secondly, what other coverages that appear totally unrelated to property business at first glance will be lumped into policies as insurance companies scratch and claw to maintain top-line numbers?
Just like individuals buying new cars, most insureds will choose an insurance product that can give them something other products cannot, even more so if at no additional cost. Over the last several years, the coverage that has made significant noise in the property market is cyber, or non-physical BI damage. In a perfect world, non-physical cyber exposure wouldn't be covered by a property policy, as a property policy's intention is to indemnify an insured for physical damage to owned, leased, or rented tangible property from physical perils such as fires, hurricanes, earthquakes, floods, etc. However, clients are requesting non-physical cyber coverage as part of their property policies and want to be indemnified for any business interruption loss they suffer from a hacking, for example. Insurers, anxious to continue to bring in premium, are offering larger and larger cyber sublimits in order to make sure they will retain the business. The same insurer that is now offering communicable disease was the first insurer to offer expanded coverage for cyber as well, and now they are doing the same thing with communicable disease. The main reasoning behind offering these covers may partly be pure marketing, especially if the exposure is considered to be minor for most operations. Only in case of a heavily exposed business operation, may the insurer pay special attention to underwriting.
So what is the definition of communicable disease? "A disease that is transmitted through direct contact with an infected individual or indirectly through a vector." How does that have any relevance whatsoever to property insurance? It really does not. It does have, however, a link to business interruption. There are established extensions to business interruption covers in certain markets (e.g. UK) though designed for operations such as hotels, restaurants and hospitals that insure against loss due to murder, suicide, food poisoning and infectious disease. Whereas consequences of such incidents for these types of operations are rather obvious, they may not be for other operations.
Consider for example this scenario: an individual who works at a manufacturing facility contracts the Ebola virus. He or she brings that virus to the facility one day and the facility becomes infected. The facility then has to shut down for a number of days, and the company loses valuable production time, which ends up affecting sales. On top of that, this event hit the press, so now there is extreme negative reaction from consumers and no one wants to buy products from this company even once they are able to sell at normal volume again. Not being able to sell or manufacture a product is why business interruption insurance exists, and no one would debate if that should be covered in a property policy. However, under a majority of bread and butter policies, physical damage was not the reason for the lack of sales or production, so this type of loss would be excluded from coverage. Enter communicable disease coverage. Now an insured has coverage for this type of event and can recover many of their lost profits up to a certain limit.
Of course, the coverage comes with caveats. The location that suffers the outbreak has to be owned, leased, or rented by the Insured. Additionally, there has to be evidence of an actual disease on the premises, not just suspicion. Finally, access to the location has to be restricted or prohibited either by an order of authorized governmental agency regulating the actual disease or by an Officer of the Insured. The communicable disease also has to be transported by human-to-human contact, so this coverage would not indemnify an insured for something like asbestos or mold. However, it's still a unique coverage that not many other insurers are willing to put significant limits on. In addition, the fact that coverage is provided for public relation fees and if an officer of the insured shuts the facility down (not necessarily a government agency) truly makes this an innovative and original coverage.
So is it here to stay? That remains to be seen. Generally, once a product is offered as part of a policy, it can be difficult to remove in the future as clients are so used to having it. As it becomes more mainstream, it becomes much easier for an insured to find this coverage elsewhere in the market. For a unique coverage like communicable disease, the media will play a large role in keeping it fresh in everyone's minds and reminding people how damaging a significant event can be.
Between cyber coverage and now communicable disease (or murder, suicide, food poisoning) coverage being introduced in property policies, property insurers are doing all they can to differentiate themselves from competitors. The question on many people's minds is, "what's next and how is the accumulation potential of cyber and communicable disease taken care of?"
Category: Climate/natural disasters: Pollution, Other